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2018/03/12

Tips on entering into manufacturing supply agreements with Taiwanese companies

by Ling-ying Hsu and Roxana Cheng

As an international brand owner, do you have a supplier located in Taiwan? Most brand owners do, as Taiwan has long been known as a leading provider of manufacturing services to companies worldwide operating in a variety of industries, from tech gadgets and components to sporting goods and garments.

In negotiating supply agreements, most international brand owners would prefer to use a standard agreement hoping that such an agreement will cover all aspects of their relationship with their suppliers worldwide. Based on our experience, while this is often an appropriate starting point, the standard supply agreement should still be tailored for its use in Taiwan in order to comply with the applicable laws and regulations and maximize the protection to a brand owner’s rights. Here, we outline a few tips to pay close attention to when negotiating a supply agreement and in dealing with a Taiwanese supplier in general.

By way of example, standard agreements usually cite international conventions as a basis for the protection of their intellectual property. However, Taiwan is not a member to most international conventions, and although Taiwanese laws do provide similar protections as those provided by international conventions, supply agreements must be tailored to reflect the terminology and content in accordance with Taiwan laws and regulations.

Another example would be that parties to supply agreements often choose arbitration as the dispute resolution mechanism and set the seat of arbitration at a neutral location. Because Taiwan is not a member to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), trying to enforce a foreign arbitral award in Taiwan proves to be much more cumbersome and time consuming than in other jurisdictions. This is why absent any special circumstances; it is always advisable to set the arbitration forum in Taiwan.

2. Cover all the bases

In light of current business operation trends, many Taiwanese suppliers maintain factories or work with subcontractors in other jurisdictions, particularly in China and increasingly, South East Asian countries such as Vietnam. Hence, it is advisable that any agreement entered into with a Taiwanese supplier must also cover any such entities.

3. A stamp of approval

Most countries have unique approaches to conducting business and Taiwan is no different. By way of illustration, foreign companies often overlook certain formalities in order for an agreement to have full force and effect in Taiwan, since in many countries, only the signature of the authorized representative of each party is needed for an agreement to take effect. In Taiwan, in order to avoid any circumstance whereby the Taiwanese supplier might challenge the contract, the company chop of the supplier and the seal of its chairman must be affixed on the agreement at the time of execution. The authorities in Taiwan require all companies to record these two chops in a database as the registered and authorized chops of the company. While it may seem archaic to some, this small step provides an additional layer of protection.

Although a standard supply agreement would probably be sufficient in most cases, a properly localized agreement can maximize the protection afforded to a brand owner. In general, Taiwanese laws are in line with most international standards; however, it is still best to retain local counsel to review any supply agreements to be executed with Taiwanese parties. They will be able to confirm whether the agreement as-is complies with Taiwan law, and at the same time, raise any issues or concerns and provide advice on how best the agreement can be altered. As supply agreements are, particularly those related to manufacturing, one of the most common types of commercial agreements seen in Taiwan, experienced counsel will be well versed in the specifics of contract and intellectual property law in the country.